Emerging Markets Fall Today: Developed Ones Next?

8/22/2013 6:38AM

A fear of the U.S. Federal Reserve tightening of its loose monetary policy may be hurting emerging markets now but the developed world will also start to suffer, says Jan Dehn, head of research at Ashmore Investment Management.

This transcript has been automatically generated and may not be 100% accurate.

I ... the way she has read the little that was new ... leading potential of just assume that tapering will start later this year ... he was early as next month ... the medium of the Muppets on the precious body and then from Asbo Investments is that's us what happens now ... Israel suffered a lie ... but I think it one has to make a distinction between what's happening to asset prices and what's happening to their economies in the ... case in point is the the ... the manufacture numbers out of China this morning which have been picking up substantially ... the Python they Kia's that that there is a huge piece of uncertainty ... that has now clouded the outlook ... for the building on a particular need Munnetra policy in United States ... every time there is a major piece of uncertainty ... the knee-jerk reaction the market is to sell emerging markets we seen this with Greece Co-op ... recently saw when Treasuries with downgraded ... resort in the subprime crisis ... at the what tends to happen he is that asset prices move from all the non aligned fundamentals can get ... quite out of line with on a mindless slaves to the surprise were boosted by the massive liquidity the Fed to buy a puppy ... that's not really ... if you look at Daiwa asset prices in America concentrating now compared to ... two and a weak trading ... before the global crisis ... then factoring a much lower levels ... has spread strikes on from an external debt on the twice as wide as they went two thousandseven ... so that's not really true and that bonds broke off the QE money ... the bulk of it has gone into the heavy debt in developed countries into them markets ... the other ones that are sensitive to the withdrawal of liquid so what's happening now with the way that's coming up the emerging markets where it was going ... well you have to pay in order to ALM so the question a new Tosca South who sending ... their essentially top five types of investors that I invested in emerging markets ... there are hedge funds banks ... crossover on this this ... and and domestic and foreign real money Heidi longtime Stake Institute on money ... at what tends to be sending ... a journey times but it's that the institutions of selling out fast money ... banks across abundance this ... the money is coming out a lot of that is going into cash because there is also uncertainty about the article as we know for us the ones as well as the U S stocks which have been down six days in a row ... it is couldn't stay because it was cut to talk about that the that that was needed in the shop aam I'd I'd even talk about these will be seen as some of these countries find ... themselves to themselves to go there and ... you know ... it tried stopping you from fully but it's already succeeding ... well that depends on your perspective those attacks have gone and with a hundred million dollar facility such as freedom ... absolutely peanuts and that tells you something very important ... which is that emerging market central banks actually perfectly happy ... to see their currencies weaken a bit ... because that provides relief for their economies that makes their exporters more competitive ... there is a limit though ... at the limit we have seen reached in places like Brazil where the Sentra banks has come up and sickle very clearly that we don't we wanna see all currency weaken too much ... because then we get Oster into inflation and the higher bond yields an opening ... so Ed Ed Fernald the a and moderate adjustment in the currencies is absolutely welcome ... in fact in Asia and a ... combined Asian Sentra banks Antonie intervened to the tune of thirteen billion dollars so far since the beginning of June which is really a tiny amount when you take into account that ... India's central bank loan has two hundred ... and seventy billion dollars foreign exchange this is is physically put this in some sort perspective of this or the size of those the funds that was seen at the moment so it's relatively small amounts of money and the boss majority of local of runs in emerging markets ... owned by domestic institutions ... these domestic institutions are not sending ... what we've seen here on Fox money flows and leverage was put into the market in April as the market ... rally anticipates that flow from Japanese investors in ... and tried to front run that with a lot of leverage so that the technicals got a big stretch the defense offer the and that's ... part of the reason why we senior of those from OKC of these massive amounts of of of funds that the best among its own with that but it had invested so that if a stock is selling what could be some sort of takeover ... will be their pension systems and American markets are ... growing very rapidly ... but they're also very recent inventions and if you think back to a country like Brazil ... ten years ago Brazil basically didn't have a fixed coupon bond market ... and the the the emergence of on my cousin NEM is really on the back of the minimum pension systems ... because these pension systems are so young ... today many of them are still not allowed to invest in foreign assets and that means that you really have a buyer base as a very solid ... read by a base within individual emerging market countries ... and that's one of the primary reasons why for example we not heading to a new Asian crisis ... within us is exhausted but not that would be a spy in briefly on ... yet ... what is is the goodwill that sort of way ... while the ... way we have to focus on the real vulnerabilities in the real vulnerabilities on those countries that have ... not ... yet ... they're the ones who are not going to be able to stomach rising in relation to its okay though ... is absolutely heavily indebted developed countries like the United States or Europe ... will release trouble ... is real interest rates move a lot higher than what they've moved so far ... we've already seen mortgage